Drop in U.S. Factory Hours In June Was Overstated, Economist Carson Says

By Courtney Schlisserman -
Jul 6, 2010

The drop in factory hours in June as
reported by the Labor Department in its employment data last
week probably overstated any slowdown in U.S. manufacturing,
said economist Joe Carson.

The decline in the factory workweek, to 41 hours last month
from 41.5 hours, was the biggest drop since December 2000,
according to July 2 data from Labor Department on non-
supervisory workers. Hourly earnings at manufacturers dropped
0.1 percent.

The figures stand in contrast to the 9,000 gain in
manufacturing payrolls, the sixth straight increase in an
industry that spearheaded the U.S. economic recovery. Carson
said because factory workers aren’t counted as working overtime
on holidays, and Memorial Day coincided with the period the
government examines in putting together its jobs report, it’s
possible the drop in hours was exaggerated.

“You can definitely see the potential impact from the
holiday on the overtime hours,” Carson, director of economic
research at AllianceBernstein LP in New York, said in an
interview. “It doesn’t wipe out the decline but it makes it
much smaller than was reported.”

Factory employees have been working an average 4 hours of
overtime a week, or 0.8 hours a day, Carson said. Assuming no
company changed its work schedule and excluding the effects of
Memorial Day on overtime, factory hours worked would have
averaged 41.5 in the first two weeks of June, before seasonal
adjustment. That would have left the figure little changed from
May on an adjusted basis.

Last Time in 2004

Bureau of Labor Statistics economist Steve Mance confirmed
the government doesn’t include the Memorial Day holiday in its
seasonal adjustment for June. That is because the odds of
Memorial Day occurring during a two-week period covered by the
June payroll report are slim, Mance said. The last time it
occurred was 2004.

“It’s unusual to have a large drop in hours with an
increase in employment,” Mance said.

Manufacturing has been a source of strength for the economy
since last year. Recent figures have shown that the pace of
growth in the industry is slowing to a more sustainable pace.
The Institute for Supply Management’s factory survey for June
fell to 56.2, lower than economists had forecast.

The drop in factory hours suggests industrial production
probably declined, Michael Feroli, chief U.S. economist at
JPMorgan Chase & Co. in New York, said in a note to clients July
2. The Federal Reserve uses factory hours when calculating the
change for manufacturing in the central bank’s industrial
production report. The figures for output at factories, mines
and utilities will be reported on July 15.

There was nothing in the June supply managers’ report
“that would give you an indication there was a strong pullback
in orders or production during the month, and that was what
hours worked was suggesting,” Carson said.